'Fiscal Cliff' Deal: What Will It Mean for You?

'Fiscal Cliff' Deal: What Will It Mean for You?

Article excerpt

Your taxes are probably going up, but not as much as they would
have without "fiscal cliff" deal.

That's the short summary of what's in store for US households now
that a fiscal bargain between the White House and Congress has been
reached.

The welcome news for personal pocketbooks is that most Americans
will see no change in their income-tax rates.

But the amount of taxes paid will still rise, for two major
reasons: First, workers will owe 2 percent more of their paychecks
to the government in 2013 because Congress is allowing a temporary
payroll-tax cut to expire. Second, tax rates are rising for
households that earn more than $450,000.

The goal of the legislation was to reduce federal deficits while
also avoiding the so-called "cliff" of big tax hikes and federal
spending cuts that had been scheduled for Jan. 1. If Congress took
no action, the resulting shock to consumer pocketbooks could have
thrown the US into recession, economists warned.

How will the fiscal bargain affect you? Here are some of the big
possible ways, with income taxes listed last (but not least in
importance):

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The long-term unemployed. Emergency unemployment insurance
benefits will be extended for a year, helping an estimated 2 million
out-of-work Americans.

Milk drinkers. Dairy prices won't spike, thanks to this
legislation. Without action to extend 2012 policies, milk prices
appeared set to surge as US law reverted to a 1949 pricing system.
To families that already feel like milk is a personal budget-
buster, this prospect was so fearsome that it had its own name: the
"dairy cliff."

Home sellers. For legions of would-be sellers whose mortgage
balances are larger than the home's market value, the legislation
extends important tax relief. Borrowers will still be able to
arrange a "short sale," when the lender agrees to accept less than
the full balance due on the mortgage, without having to treat the
forgiven debt as taxable income. That's good news for the housing
market, since short sales are a major alternative to foreclosure for
would-be home sellers.

Working people. The expiration of a temporary payroll-tax cut
means that workers will again pay 6.2 percent of their paycheck
toward Social Security, up from last year's level of 4.2 percent.
When Medicare taxes are added in, and the share paid by both
employers and employees is included, payroll taxes devour more than
15 cents of every dollar in wages.